How to build your new super Isa: Five top investing tips from the professionals

When you first take a bet on the stock market, it’s easy to feel intimidated.

Not only do some of the funds sound strange, and some of the places you can put your cash exotic, but there is the prospect of losing plenty of money, too.

But once you have chosen where to invest, it’s possible to ramp up your returns with some simple little tricks used by the professionals.

Opportunities: Look for a variety of investments which may soar over the long term

1. Don’t get caught up by hype

You’ll quickly find that in the world of investments, something will always be talked about as ‘the next big thing’. It might be a share tip from a friend in the business, City rumours which spread across pubs, predictions from an economic expert in an interview or simply a hunch.

Most fund managers also send out waves of emails and newsletters telling you about a world of opportunities at your fingertips, making it difficult to separate the sensible ideas from the stinkers.

Hotspots for so-called ‘smart money’ come and go with alarming speed. One day you’re told to put your money in gold, the next it’s the U.S., then Brazil - oh, and don’t forget the UK! So rule number one has to be: ignore the hype.

Remind yourself why you invested in the first place and what you are trying to achieve - whether it’s a university fund for your children, a nest-egg for your grandchildren or savings to supplement your pension. If need be, write it down - so you can go back to it and remind yourself.

This way you’ll be focused on your end objective, and you won’t be tempted to take a sudden bet on the Brazilian coffee market just because some sharp City suit thinks you should.

Patrick Connolly, at advisers Chase de Vere, says: ‘Don’t get swayed or start thinking you should put your money elsewhere just because something has gone to the top of the performance tables. ‘Strong recent performance should be seen as a warning sign rather than as an opportunity to buy, as investment gains have already been made.’

2. Plough back your profits

Even when the stock market is flat, you can keep making money. The way to do this is by putting the annual dividends that companies pay out back into your fund. It’s called reinvesting your income.

A dividend is a slice of profits a company dishes out to shareholders, usually on a regular basis. The biggest dividend payers are large, reliable firms well set to weather economic storms.

Last year, UK companies paid out £79.8billion in dividends. If you reinvest this income, it can have a staggering effect on the value of your nest egg. Research by Barclays Capital shows that £100 invested in UK shares in 1945 would have grown to £7,400 by February on its own.

But if you had reinvested the dividends, then it would be worth more than £131,500. You can take a punt on a handful of shares, but a better option might be an equity income fund which invests in many firms.

Each fund has a ‘yield’, which is best compared to the interest on savings and is usually presented as a percentage of the share price. The higher the yield, the more income you get for your money. On average, UK equity income funds pay out 4p a year for every £1 invested.

Make sure the money is reinvested automatically to grow your pot. This dividend has helped equity income funds outshine rivals purely focused on growth over ten, 15 and 20-year periods, according to FE Trustnet.

Pay rise? Set aside 10 per cent of any pay boost and put it into your pension or an Isa

3. Take a punt on hidden gems

Instead of following the herd to the next fashionable investment, look for a variety of investments which may soar over the long term. For example, there are fast-growing economies with bags of potential, such as India, China, Russia and Mexico — though putting your money into these regions is not for the faint-hearted.

Alternatively, if you want to stay closer to home, there are funds which pick companies that are either unloved, or are relatively small and have the potential to grow enormously. The former are known as ‘Special Situations’ or ‘Opportunities’ funds. The latter are known simply as ‘Smaller Companies’.

The idea is to bet on the chance of spectacular growth through a brilliantly profitable idea from one company, or piggybacking on the expansion of smaller businesses which grow as the economy begins to pick up. But don’t plough all your money into these funds.

Think instead about putting in, say, 10 per cent of your available investment fund as a way of helping lift your profits to greater heights. Generally, the younger you are and the longer you have to invest, the more you can be prepared to take a bit of a gamble.

4. Boost your savings when your wages go up

Getting a pay rise might seem like a good reason to crack open the bubbly. But, for most people, suddenly feeling richer lasts only a matter of months as your lifestyle adjusts to having extra cash.

So, a clever trick to bring long-lasting wealth is to increase your savings as your wages rise. Set aside 10 per cent of any pay boost and put it into your pension or an Isa.

So, if you’re lucky enough to get a £1,000 annual pay rise, put £100 of it (or £8.33 a month) into a savings account or your pension. If you do this each time you get a pay rise, you’ll quickly find you’ve built up a nice little nest-egg painlessly.

5. Make the most of your annual allowances

Once you’ve gone to all that effort to pick the right investments, it seems silly to lose some of your profit to the taxman. So put your shares and funds in an Isa or pension. In an Isa, your profits are tax-free and you can also get the money out without having to hand over any to the taxman.

In a pension, the profit is tax-free and you also get back income tax on the money you save. So if you’re a basic-rate taxpayer and pay in 80p, this will be boosted to £1. In a pension, though, while you can take out 25 per cent of your fund tax-free, any additional money will be taxed at your highest rate of income tax.

Remember, if you are married, you can take advantage of both your own and your spouse’s Isa and pension allowance. This tax year, which ends in April, you can invest as much as £11,520 in an Isa, with a maximum of £5,760 of that in a cash Isa.

BEWARE THE SCAMMERS!

Watch out: You can often tell a fraud when you get a cold-call from someone pressuring you to invest

With so many weird and wacky investments out there, you have to be careful. There’s every chance a conman will try to offer you a rogue investment which could wipe out your entire nest-egg.From holiday homes in the Caribbean, to wine funds, many of these investments are unregulated. And some are complete scams.

You can often tell a fraud when you get a cold-call from someone pressuring you to invest and saying it’s an offer ‘too good to be passed up’.

If you’re concerned, you can make sure the company is registered with the UK watchdog, the Financial Conduct Authority (go to www.fca.org.uk/consumers).

A UK-regulated company means you should be covered by the Financial Services Compensation Scheme if anything goes wrong.

It might be a cliché, but stick to the old adage: ‘If it sounds too good to be true, it usually is.’ The problem is that investment scams regularly look and sound utterly plausible.

The salesmen are usually smooth-talking, their websites slick, their brochures glossy and sophisticated — and prospectuses are packed with compelling stats and figures.

This can make it incredibly tricky to tell them apart from genuine investment opportunities.Fraudsters might get in touch out of the blue after lifting your phone number from publicly-available lists of company shareholders. They may also target you by email, post or at a seminar.

Watch out for phrases such as ‘inside information’, ‘trade secrets’, ‘a hot tip’ or ‘special expertise’ — especially when twinned with talk of overseas markets or companies you have never heard of.If you are ever unsure, hang up.

The FCA also carries a list of unauthorised firms that it is keeping an eye on at the same web address.

However, the names of rogue operators can change regularly, so be careful. If a firm approaches you but does not appear on its list, never assume it is above board. It might simply not have been reported yet.

FUND JARGON BUSTER

The investment industry's world of abbreviations...Acc: Accumulation - any income generated by the fund like dividends or interest is automatically reinvested.Inc: Income - any income generated is distributed by the fund instead of being reinvested. Dis: Distribution - any income generated is distributed by the fund instead of being reinvested. R: Retail - the fund is aimed at ordinary investors. I/Inst: Institutional - the fund is aimed at corporate investors like pension funds. A, B, M, X etc: Different fund houses use letters for different things. Check with them what they stand for. NT/No trail: Some fund houses use this name on clean funds which carry no commissions for financial advisers, supermarkets or brokers, just the fee levied by the fund manager. But other fund houses use different letters - I, D or Y, for example - so you need to find out for yourself which are clean funds. Gr: Stands for gross. GBP/£: Fund denominated in pounds. EUR: Fund denominated in euros. USD/$: Fund denominated in US dollars. Compiled with online stockbroker The Share Centre